2 Risks For Foot Locker Investors Heading Into Q3 Earnings

Deutsche Bank remains Buy-rated on Foot Locker, Inc. (NYSE: FL), but laid out two risks ahead of the company’s third quarter earnings on November 18.

Risks

Below are the two risks:

1. “FL is currently as well-liked & owned as we have experienced in years (stock up ~17 percent the past 3 months vs. SPX down ~1 percent) & short interest is only ~10 percent.”
2. “SSS likely decelerated modestly in 2H of the quarter given a 'just okay' new release calendar & ongoing challenges in bball.”

Analyst's Expectations

Analyst Paul Trussell expects EPS of $1.15, above the Street at $1.10, representing 14.8 percent growth from last year and the company’s double-digit guidance. The analyst sees gross margin at 33.9 percent and EBIT margin at 12.6 percent.

Despite a slowdown in basketball category led to a drop in sales trends in the second half of the quarter, Trussell still expects comp growth in mid-single digit territory at 4.8 percent, in-line with the Street and guidance.

Further, the analyst believes a comp lift for Foot Locker from the release of Nike's Jordan 3 Retro “True Blue” around Black Friday.

Rating And Justification

Meanwhile, Deutsche Bank raised its FY17 EPS estimate to $5.25 from $5.20 and the Street at $5.24, and price target to $76 from $75 on “a robust retail sub-sector, best-in-class SSS, solid EBIT flow-through, and buyback.”

“Even though we are raising our FY17 EPS forecast by five cents, EPS growth YOY remains up only ~9 percent vs. our FY16 forecast of ~13 percent, leaving opportunity for our numbers to go higher given FL’s proven ability to generate DD earnings growth,” Trussell wrote in a note.

At the time of writing, shares of Foot Locker were up 0.82 percent to $72.12.

Image Credit: By Raysonho @ Open Grid Scheduler / Grid Engine (Own work) [CC0], via Wikimedia Commons.

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